Page 138 - Capricorn IAR 2020

GLOSSARY OF TERMS ANNUAL FINANCIAL GLOSSARY OF TERMS STATEMENTS
NOTES TO THE CONSOLIDATED AND SEPARATE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 30 June 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.5 Property and equipment (continued)
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting period. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within ‘other operating income’ in profit or loss.
Investment properties held by Group companies and which are occupied by other Group companies are recognised as property and equipment in the consolidated annual financial statements.
2.6 Repossessed property
In certain circumstances, property is repossessed following the foreclosure on loans that are in default. Repossessed property is included under other assets as inventory as it is held for sale in the ordinary course of business, at the lower of cost or net realisable value, and is derecognised when the asset is sold to a third party.
2.7 Impairment of non-financial assets
Intangible assets that have an indefinite useful life or intangible assets not ready to use are not subject to amortisation and are
tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Prior impairments of non-financial assets (other than goodwill) are reviewed for possible reversal at each reporting date.
2.8 Leases
2.8.1 IFRS 16 – ‘Leases’ – Applicable to current period figures
This policy is applied to contracts entered into, or changed, on or after 1 July 2019.
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group assesses whether:
• The contract involves the use of an identified asset.
• The Group has the right to obtain substantially all of the economic benefits associated with the use of the asset throughout the
period of use.
• The Group has the right to direct or use the asset. The Group has the right to direct or use the asset when it has the decision-
making rights that are most relevant to changing how and for what purpose the asset is used.
Contracts may contain both lease and non-lease components. The Group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices. However, for leases of real estate for which the Group is a lessee, it has elected not to separate lease and non-lease components and instead accounts for these as a single lease component.
Lessee accounting
The Group leases various offices, branches and houses. Rental contracts are typically made for fixed periods of 5 to 10 years, but may have extension options.
Depreciation on right of use assets is calculated using the straight-line method to allocate their cost over their estimated useful lives as follows:
Buildings 5–10 years
Leased lines 2 years
Until the 2019 financial year, leases of property and equipment were classified as either finance or operating leases based on the requirements of IAS 17. From 1 July 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group as required by IFRS 16.
Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes.
Right-of-use assets are presented as part of ‘property and equipment’, while lease liabilities are presented as part of ‘other liabilities’ on the statement of financial position.
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